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DECEMBER 13, 1999 VOL. 154 NO. 23

The Battle in Seattle
Never mind the riots. The real threat to the WTO's free-trade agenda lies in discord among member nations
By MARGOT HORNBLOWER Seattle and HANNAH BEECH Hong Kong

The Role of The WTO
Headquarters: Geneva
Membership: 135 countries
History: Successor to the General Agreement on Tariffs and Trade formed in 1947. Once limited to goods, the WTO's purview has been extended to include intellectual property and trade in services. The organization's task is to administer and enforce the trade agreements made by member nations, ensuring freer flow of goods and services. Its rulings are law among members.


Woodstock was about free love. Last week's vintage '60s-style protest in Seattle revolved around a far less sexy topic: free trade. Tariffs, subsidies, antidumping measures and multilateral investment agreements hardly seem the stuff of mass unrest. But as Seattle found out when tens of thousands of demonstrators descended on the normally placid city, the economic policies that the sober, 135-member World Trade Organization is determining affect just about everyone, from silversmiths in Indonesia to apple growers in Washington state.

The Geneva-based WTO is both traffic cop and top court of the global economy. Its 36,000 pages of regulations reach into far-flung crannies of human existence. Can Malaysian fishermen export their shrimp to the U.S. even if their nets lack escape hatches for endangered turtles? Yes. Can Massachusetts refuse to buy products from companies that do business in Burma? No. Do American corporations get an illegal export subsidy by setting up legal offshore tax shelters? Yes. Can the French block U.S. and Canadian hormone-fed beef? No. Rule breakers are punished--in France's case by a hike in the tariffs on Roquefort cheese, among other goodies.

More of these complex rules and regulations were argued out in Seattle as trade ministers, politicians and their staffs hunkered down amid the protests to launch a new multiyear round of economic wrangling. Despite the free trade rhetoric, the aim of many countries seemed to be how to promote its own exports--and, as much as possible, avoid one another's imports.

In the abstract, free trade is feel-good fellowship. Trash the tariffs and, globally, consumers profit from lower prices. Political enemies turn into economic friends, who trade together and play together. In the half-century since the WTO's predecessor, the General Agreement on Tariffs and Trade, was founded with 23 members, world-wide commerce has expanded 15-fold, to $6.5 trillion. As the world's largest exporter and importer, the U.S. owes nearly a third of its economic growth in the past decade to trade. Exports now make up more than 42% of Canada's GDP, and the figure is even higher for most Asian economies. "Cooperation is not a choice," says Mike Moore, the onetime meatpacker and New Zealand Prime Minister who heads the WTO. "It is indispensable to survival."

    ALSO IN TIME
Cover: Rage Against The Machine
Despite, and because of, violence, anti-WTO protesters were heard

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Never mind the riots. The real threat to the WTO's free-trade agenda lies in discord among member nations

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Who's Afraid of Frankenfood?
So far, the movement against g.m. crops has been confined to Europe. But thanks to a little uncertainty and a lot of agitprop, that's changing

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Anatomy of a WTO Deal
Bluffs and brinksmanship kept both sides guessing until the U.S. and China finally signed the trade pact

China's WTO Deal May Leave Hong Kong Out in the Cold
The People's Republic's likely accession into the World Trade Organization may make Hong Kong's lucrative role obsolete

Barshefsky: 'It is political legitimacy'
TIME speaks with Charlene Barshefsky, U.S. Trade Representative, in this online-only, extended interview

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China's deal with the U.S. is just the beginning

Seattle
What to expect from WTO's global negotiations

Even most of the tear-gassed rioters in Seattle claimed not to be against trade, arguing instead that they wanted corporation-friendly rules to address social concerns: the environment, labor rights, Third World poverty. But while the myriad protesters outside were capturing the headlines, it was an implosion inside the negotiating rooms that was panicking trade diplomats. Despite marathon discussions in Geneva preceding the Seattle talks, the meeting's agenda was in tatters, with too many conflicting goals and alliances to count. Poor countries sniped at rich ones, Europe balefully eyed anyone attempting to dismantle its protectionist agricultural policies and practically everyone had a bone to pick with the host Americans.

Perhaps the noisiest complaints came from the developing countries, who claimed they had opened their markets--according to the directives of the previous Uruguay trade round--with little benefit. They want more time to comply with rules on financial services and intellectual property, the latter jealously guarded by U.S. multinationals. Asian and African nations pushed for a dispensation to ease drug patents so poorer countries don't have to fork over royalties to Western pharmaceutical companies, allowing them to produce cheap drugs at home to fight aids and other costly diseases. At the same time, Third World ministers were also arguing that richer countries have an obligation to dismantle their barriers, particularly in the wake of the Asian financial crisis of 1997, which devastated countries from Thailand to Peru. "In this day and age, Asia lives and dies by trade," says Dong Tao, senior regional economist for Credit Suisse First Boston in Hong Kong. "Its export-led economies need access to more markets to offload their goods."

Meanwhile, the Europeans and Japanese, as usual, mounted an all-out defense of their agricultural markets. The European Union protects its $44 billion in farm supports with a complex set of rules. Now the U.S. and Canada claim that its recent moratorium on the import of genetically modified crops also amounts to a trade barrier. European Union trade commissioner Pascal Lamy has been standing up for what he calls "specific traits of European civilization--the insistence on high-quality foodstuffs, cultural identity in a world without barriers and a reluctance to see some activities reduced to a commercial footing." In other words, protection against too many Disney movies, Pizza Huts and Wall Street financiers.

An American cultural invasion isn't the major concern, however. Anti-U.S. sentiment in Seattle was focused on what other nations see as America's double standard on trade. Particularly irksome to Asians has been Washington's insistence on reducing tariffs on e-commerce, biotechnology and financial services--industries in which the U.S. clearly leads--and at the same time enforcing anti-dumping legislation on steel imports. "As the host nation, the U.S. should have been steering the conference preparations in Geneva," says Chau Tak-hay, Hong Kong's Secretary for Trade and Industry. "But the American delegation was so focused on pursuing its own narrow agenda that it showed little consideration for other countries' needs."

That lack of flexibility, critics say, contributed to the chaos swirling around the Seattle negotiating rooms. Goaded by some 30,000 labor and environmental protesters--and mindful of their influence during an election year--the U.S. sought to include environmental and human-rights standards by using a carrot-and-stick approach: set up a WTO study group on labor issues, and we'll lower a tariff or two. That tactic did not succeed. Unlike some other international organizations, the WTO operates by consensus. The largest bloc, made up of 77 developing countries, stands virtually united against efforts by wealthier countries to influence environmental and labor laws. "There's an Asian consensus that human rights should not be linked to trade," says economist M.G. Quibria of the Asian Development Bank in Manila. In the view of developing countries, trade-pact clauses involving labor and the environment amount to backdoor protectionism. "All the evidence suggests that free trade raises labor standards by increasing prosperity," says Hong Kong's Chau. "If that's the case, why is the U.S. trying to avoid trade liberalization?"

Developing-country leaders aren't impolitic enough to advocate ignoring labor standards altogether. Instead, they maintain that such issues should remain the domain of the lesser-known--and largely toothless--International Labor Organization. "If you try to incorporate the ILO's goals into the WTO," says Andy Xie, chief China economist at Morgan Stanley Dean Witter in Hong Kong, "then you risk compromising the WTO's main goal, which is trade liberalization, not human rights."

Such logic makes it awkward for many U.S. protesters, who say they are out to help the Third World, not just clean up the planet, end child labor and promote human rights. Venezuela and Brazil successfully challenged as discriminatory a U.S. law that set stringent environmental regulations for refineries that make gasoline for export. Four Asian countries--Malaysia, India, Pakistan and Thailand--fought the U.S. effort to ban shrimp caught in nets without turtle escape hatches. "If you want to put turtles ahead of Indian poverty, go ahead!" said Columbia University economist Jagdish Bhagwati in a debate. "But why not go out and buy these $15 nets at Wal-Mart and give them to the fishermen?"

For years, the cold war afforded political cover for free trade. Who could oppose economic freedom as it cleared a pathway for democracy? But as the threat of communism receded, the public began to focus on market globalization as the root of many evils. Is big better? Is small still beautiful? The underlying principle of the global economy is that each country should manufacture and freely export the goods it can make at a comparative advantage--read cheaply--over other countries. If this means paying slave wages and leveling the rainforest, so be it.

Despite the economic upturn, this survival-of-the-fittest ethic has spawned widespread anxiety in rich countries and poor countries alike. In Washington state, nearly a third of jobs are linked to exports, yet even well-paid workers fear their posts could migrate tomorrow. "Many people see only layoffs," laments U.S. Commerce Secretary William Daley. "They don't see the payoffs of this open-trading system." That same sentiment galvanized farmers in the Philippines, who gathered in Manila last week to protest a potential influx of subsidized maize, arguing that a rash of cheap imports could bankrupt them and erase years of economic gains.

Still, many would echo Daley's belief that peace and prosperity can flourish only if trade barriers tumble. United Nations Secretary-General Kofi Annan acknowledged in a recent speech that "the trading system is one of the great success stories of the past half-century." At the same time, he added, with a quarter of the globe's population mired in poverty, multinational companies risk a wave of protectionism unless they commit to "global corporate citizenship" in the form of concessions to labor, human rights and environmental health.

Such is the challenge of the WTO, the newest and perhaps most powerful global institution on the block. With massive protests in Seattle, the substantive issues on the negotiating table almost became a sideshow. Nonetheless, by week's end, the focus returned to the cantankerous brinksmanship of warring trade delegations. In the end, the Millennium Round will be judged, not by the window-smashing of a few anarchists, but by the ability of nations to negotiate through their differences, open up the WTO to wider, more democratic participation and thus--as naive as it may sound--help to make the world a better place.

With reporting by Steven Frank/Toronto and James L. Graff/Brussels

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